Woes mount for Zimbabwe formal businesses\

Informal traders who largely evade taxes and levies are placing formal retail and wholesale businesses in Zimbabwe at a significant competitive disadvantage, burdened by a heavy and complex taxation regime, Parliament was told last week.

A report presented to the National Assembly by the Parliamentary Portfolio Committee on Industry and Commerce, chaired by Zaka legislator Clemence Chiduwa (Zanu PF), revealed that formal businesses face multiple taxes and charges that consume nearly 5% of their total expenses. Among these, the 2% Intermediated Money Transfer Tax (IMTT) on electronic transactions is the highest in the region, discouraging digital payments and driving the economy toward a predominantly cash-based system.

"The committee established that registered businesses are forced to comply with tax laws while the informal sector evades tax, which certainly leaves the former at a price-competitive disadvantage," the report stated. "In addition, the taxation regime is heavy on formal businesses, creating incentives for informalisation."

The report highlighted that the IMTT is not deductible for income tax purposes, adding further financial strain on formal operators. In contrast, informal traders mainly conduct transactions in USD cash and accept the Zimbabwe Gold currency (ZiG) at a premium, whereas formal businesses must accept the ZiG at the official exchange rate, placing them at a further disadvantage.

The committee also noted that prior to the government's April 2025 review of exchange rate restrictions through Statutory Instrument 34 of 2025, formal businesses struggled with restocking goods. Many suppliers preferred payments in USD, but formal retailers' balance sheets remained predominantly in ZiG.

"This volatility has led to difficulties in competitive pricing, as unregulated players have become more attractive to suppliers seeking increased USD inflows," the report explained. "Consequently, many suppliers have shifted towards selling directly to the informal sector, often shunning local currency transactions due to challenges in obtaining hard currency through the auction system."

The report also drew attention to the excessive regulatory burdens faced by formal retail and wholesale businesses. Operating a single supermarket can require over 30 different licences and permits, each carrying substantial costs and bureaucratic procedures. This complexity not only inflates operational expenses but also diverts resources from core business functions, deterring many small and medium-sized enterprises from formalising.

"Zimbabwe's licensing and regulatory environment remains overly complex, with businesses required to comply with multiple, often overlapping, regulations," the committee said. "The high cost of regulatory compliance, redundant licensing requirements, and fragmented enforcement mechanisms are pushing many businesses into informality."

Furthermore, the committee exposed the unsustainable energy costs impacting formal businesses. Due to electricity shortages, many supermarkets and retailers rely heavily on costly diesel generators and solar power, the latter requiring expensive set-up costs - estimated at around US$130,000 - and facing additional licensing hurdles.

"The high cost of energy remains a major impediment to industrial competitiveness," the report concluded.

As informal traders continue to operate largely outside the tax net and regulatory framework, formal businesses face an uneven playing field, struggling to compete with lower-priced informal sector goods while bearing significant compliance costs. The Parliamentary committee's findings underscore urgent need for reforms to level the market and foster financial inclusion in Zimbabwe's retail and wholesale sectors.